Trump just made a big move that could deescalate the trade war with China

President Donald Trump arriving for a welcoming ceremony in Beijing on November 9.

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Damir Sagolj/Reuters

President Donald Trump has announced the results of a review into Chinese investment in US tech companies.

Forgoing a broader crackdown, Trump decided to go with a less harsh method to curb the investments: He will expand the use of the Committee on Foreign Investment in the United States to restrict Chinese investments.

After fears that Trump would introduce harsh measures to curb Chinese investment in US-based technology companies, the US president instead decided to use less stringent methods to curb the practice, including the expanded use of the Committee on Foreign Investment in the United States.

In a statement Wednesday, Trump said his administration was banking on Congress’ passing the Foreign Investment Risk Review Modernization Act, which would give more power to the committee.

“After reviewing the current versions of FIRRMA with my team of advisers – and after discussing them with many members of Congress – I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said.

While House and Senate versions of the bill still need to be reconciled, both bills are designed to strengthen the CFIUS review for foreign investment in critically important technologies. Additionally, the House bill includes a proposal that would apply a more stringent review process for investments from a handful of countries, including China, North Korea, Iran, Russia, and Venezuela.

While Wednesday’s statement from the president does not explicitly mention China, reports indicated that Trump was considering much harsher measures to specifically block Chinese investment as part of the ongoing fight over Chinese theft of American intellectual property. Among the options reportedly considered was a rule that would have disallowed companies with more than 25% Chinese ownership from investing in certain types of technology.

According to a senior administration official, a slew of other options were considered before Trump settled on the use of CFIUS.

The decision may signal a de-escalation in the US-China trade conflict after a series of tariffs and tariff threats by the two countries. By opting for the expanded use of CFIUS instead of new controls on Chinese investment, Trump appears to be trying to ease the tensions between the two sides slightly.

Trump’s choice of the less severe option also is a win for the administration’s free-trade advocates, such as Treasury Secretary Steven Mnuchin and the National Economic Council director, Larry Kudlow, over the more protectionist faction of the administration, headed by the trade adviser Peter Navarro and US Trade Representative Robert Lighthizer.

The decision also drew the ire of some of the more China-skeptic members of Congress, such as GOP Sen. Marco Rubio.

“If in fact President Trump is now backtracking on tough limits on Chinese investment, it is a VERY BIG MISTAKE,” Rubio tweeted early Wednesday. “#China is strategically buying up US companies specializing in cutting edge technology. What they don’t steal from us they buy away from us.”

Other Republicans who were more worried about Trump’s battle with China applauded the course of action.

“I welcome the president’s tough action to prevent any country from stealing our vital technology through investing in or acquiring US companies,” Rep. Kevin Brady, the House Ways and Means Committee chair, said in a statement. “To address these threats, the House and the Senate each have passed legislation to comprehensively revamp our CFIUS process. I’m glad that the president will be using that modernized and robust process to target and thwart such behavior.”

US stock futures surged following the news, with S&P 500 and Dow Jones industrial average futures going positive after being in the red overnight.